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Applied Materials Sees the Light

A deal with Moser Baer India signals future growth.

Yesterday, I wrote an article about SolarWorld's ambitious plan to create a large production facility in Oregon capable of producing 500 megawatts worth of solar modules by 2009. I am optimistic about the facility's prospects for boosting the company's revenues and profits partly because I am confident that the demand for solar cells will remain robust for the foreseeable future.

Over time, however, I expect that the type of solar cells that businesses and homeowners demand might very well change. One type of solar cell that could experience a large increase in demand is thin-film solar cells of the variety that NanoSolar, Uni-Solar -- a subsidiary of Energy Conversion Devices(NASDAQ:ENER) -- and Miasole are creating.

As evidence of a potential shift, I saw a small article on Monday announcing that Moser Baer India is investing $250 million over the next three years to set up a large thin-film fabrication facility. More interesting, from my perspective, is that Moser Baer announced that Applied Materials(NASDAQ:AMAT) will develop and install the production line.

You may recall that Applied Materials acquired Applied Films, a supplier of thin-film deposition equipment, last year for $464 million. At the time, many people assumed that the acquisition was directed at helping the company expand its flat-panel business. But the deal with Moser Baer suggests that Applied Materials was also serious about using the acquisition to move aggressively into the solar market.

According to figures I have seen, Applied Materials expects to sell $200 million worth of solar machines this year -- a figure that represents a little more than 2% of the company's estimated annual sales.

However, as the Moser Baer deal demonstrates, the demand for thin-film equipment could expand rapidly. (Remember, NanoSolar is also planning on building a massive thin-film facility.) If Applied Materials can capture even just a small slice of the market for thin-film equipment, this is a niche that could grow into an increasingly significant portion of the company's overall business.

It could also make Applied Materials -- which has a P/E ratio of 15.6 -- an interesting and fairly conservative way to invest in the booming solar market.

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Fool contributor Jack Uldrich lives in Minnesota and hasn't seen much sunlight lately. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.